All I want for Christmas is… Top tax-saving tips!

The last thing you want for Christmas is an unexpected tax bill, right? Don’t worry! From parties to presents, our friendly tax elves at Fenero have answers to all your festive financial questions

Q I’ve had a good year and would like to treat a few business contacts to a festive meal. Can I claim this as a business expense?

A Unfortunately, Revenue won’t fully play Santa on this occasion! You can pay for the cost of business entertainment expenditure from your company - however you can’t treat the cost of any business entertainment like this as a tax-deductible expense when it comes to your corporation tax. This means that the amounts get added back into your profits when your limited company's corporation tax is calculated at the end of the year.

Q I employ two staff. Can I claim the cost of a Christmas party for them as a tax-deductible expense?

A Yes; if the party is solely for your employees, you can claim the cost of entertainment (e.g. food, drinks, etc) as a tax-deductible expense. However, any VAT incurred on these costs is not deductible for VAT purposes. The payment of travel and accommodation costs for an employee/director to attend a Christmas party, even their own staff party, would be a taxable benefit-in-kind for the employee/director and therefore liable to payroll taxes. As such, the employer should get a tax deduction for the expense incurred by them.

Q A contracting client has invited me to their Christmas party and has offered to pay my travel costs. Is this a taxable benefit for me?

A No; if your client pays your travel costs directly to the travel provider, this isn’t a taxable benefit for you.

Q I’d like to give some customers a seasonal gift. Is there a tax-efficient way of doing this?

A You can receive tax relief on gifts for customers that promote your business: think key rings, stationery or pens with your business logo on. You can claim the cost of these to reduce trading profits for income tax or corporation tax purposes. However, if you give non-promotional items like chocolates or alcohol, these are treated in the same way as business entertainment costs explained above.

If a gift costs you more than €20 (excluding VAT) and if you’re entitled to take a VAT deduction for the VAT incurred on purchasing the gift, you’ll have to account for VAT on the subsequent gift to the customer. The rate of VAT depends on the goods involved.

Q My client has invited me to a restaurant for a festive lunch. Do I need to declare the cost of my meal as income?

A No! A ‘small gift’ from a client or third party may be exempt from tax as long as it consists of goods (in this case, food and drink) or a voucher that isn’t interchangeable for cash. However, if a client gives you a ‘substantial gift’, either to reward past services or in advance of future services, Revenue may well view it as income that’s liable to income tax or corporation tax.

Q Can I use the small benefit exemption scheme to reward employees at Christmas?

A Yes! Under the small benefit exemption scheme, employers can give up to two non-cash benefits to each employee and director in a tax year, provided the combined total doesn’t exceed €1,000. Most employers do this in the form of gift vouchers. So if you haven’t yet rewarded the employees or directors of your company with a tax-exempt voucher this year, or if you’ve given one voucher that was less than the €1,000 limit, Christmas is a great time to top up.

Q Before I get caught up in the Christmas rush, are there financial housekeeping tasks I should do before the end of the tax year on 31 December?

A Good thinking! Here are a few items for your festive to-do list:

• Personal taxes: Revenue usually issues the tax credits and 20% rate band certificate for the following tax year in December, so now is a good time to check your new tax credit certificate in your Revenue myAccount. Check that you’re claiming all the tax credits you’re entitled to, and remove any that no longer apply.
• Civil status: Now is also the time to notify Revenue (if you haven’t already done so) of any major life-changes during 2023: marriage, separation, divorce, forming a civil partnership, being widowed, or a change in caring responsibilities for a child or someone receiving disability benefit. You can ask Revenue to update your civil status through ‘My Profile’ or ‘Manage My Record’ in Revenue’s myAccount.
• Capital gains: The first €1,270 of your capital gains (after deducting losses) are exempt from capital gains tax (CGT) each tax year. So if you haven’t already done so, you have time to crystallise a capital gain to use this exemption before the end of the tax year. Bear in mind your spouse can also claim this exemption if the investment is also held in their name.
• Business assets: If you’re self-employed or have your own company and have a financial year-end of 31 December, it’s a good time to check that you’re still using any assets you bought for the business during the financial year. If a capital asset isn’t in use at financial year-end, there’s no capital allowance available for that asset for the year.
• Pension contributions: Additional pension contributions for employees and directors are ‘the gift that keeps on giving’ as a tax-efficient investment, so it’s worth checking if there’s scope to boost your contributions for employees or directors before the financial year-end, to reduce taxable profits.
• Tax-free benefits claims: From 1 January 2024, Revenue is bringing in Enhanced Reporting Requirements (ERR) for certain tax-free benefits such as travel and subsistence expenses, small benefits exemption and e-allowances. This means that employers will need to report these expenses to Revenue in real time before the employer pays the employee/director the benefit. So it makes sense to check that employees/directors have claimed and have been paid all their backdated benefits before 31 December 2023. Just in case as an employer you’re not quite ready for the new reporting system on 1 January 2024.

Q If my spouse and I give cash gifts to our children this year, are they exempt from any future capital acquisitions tax (inheritance tax) on our estate?

A The small gift exemption allows a person to receive up to €3,000 from each individual in any tax year, without it impacting the amount that they may subsequently receive tax-free. So both parents or both grandparents can transfer up to €6,000 each year to each child or each grandchild under this small gift exemption. It’s best to document any amounts you gift in this way.

Q Is there a tax-efficient way to give to charity this Christmas?

A Companies can claim tax relief on donations made to Revenue-approved charities, as long as the amount donated to the approved charity is at least €250 in the financial period.

If you give to a charity as an individual, you can’t claim tax relief on donations. However, if you donate more than €250 a year to a Revenue-approved charity, you can authorise the charity to gross up the donation by 31%, by claiming a portion of the tax you paid during the year.

For example, if you donate €1,000 and authorise a charity to gross it up, the amount contributed is deemed to be €1,449.27. The charity can claim the difference from Revenue, as long as you, as an individual, have paid tax of €449.27 or more during the year. If you haven’t, the amount the charity can claim is capped at the amount of tax you’ve paid. To enable the charity to boost your donations in this way, complete a CHY certificate and present it to the charity.

Get in touch

At Fenero, we’re firm believers that tax planning is for life, not just for Christmas! All year round, it’s our mission to help thousands of clients file their tax returns, plan their finances and maximise their income. We love to help contractors, sole traders, landlords and freelancers achieve their financial goals – and to enjoy the journey along the way. Contact our friendly team of experts today on [email protected] to find out more about how we can help you plan your finances with confidence – this year and every year.

Or reach out directly to Sam Armstrong Fenero's Personal Tax Division Manager or Brenda Swords our Head of Tax! Both will be delighted to help!